In May, President Trump pulled the United States out of the Iran nuclear deal despite Iran living up to its obligations and the deal working as planned. While the US kept in place most sanctions against Tehran, China and Russia - along with many European countries - had begun reaping the...

In May, President Trump pulled the United States out of the Iran nuclear deal despite Iran living up to its obligations and the deal working as planned. While the US kept in place most sanctions against Tehran, China and Russia - along with many European countries - had begun reaping the benefits of trade with an Iran eager to do business with the world.

Now, President Trump is threatening sanctions against any country that continues to do business with Iran. But will his attempt to restore the status quo before the Iran deal really work?

Even if the Europeans cave in to US demands, the world has changed a great deal since the pre-Iran deal era.

President Trump is finding that his threats and heated rhetoric do not always have the effect he wishes. As his Administration warns countries to stop buying Iranian oil by November or risk punishment by the United States, a nervous international oil market is pushing prices ever higher, threatening the economic prosperity he claims credit for. President Trump’s response has been to demand that OPEC boost its oil production by two million barrels per day to calm markets and bring prices down.

Perhaps no one told him that Iran was a founding member of OPEC?

When President Trump Tweeted last week that Saudi Arabia agreed to begin pumping additional oil to make up for the removal of Iran from the international markets, the Saudis very quickly corrected him, saying that while they could increase capacity if needed, no promise to do so had been made.

The truth is, if the rest of the world followed Trump’s demands and returned to sanctions and boycotting Iranian oil, some 2.7 million barrels per day currently supplied by Iran would be very difficult to make up elsewhere. Venezuela, which has enormous reserves but is also suffering under, among other problems, crippling US sanctions, is shrinking out of the world oil market.

Iraq has not recovered its oil production capacity since its “liberation” by the US in 2003 and the al-Qaeda and ISIS insurgencies that followed it.

Last week, Bloomberg reported that “a complete shutdown of Iranian sales could push oil prices above $120 a barrel if Saudi Arabia can’t keep up.” Would that crash the US economy? Perhaps. Is Trump willing to risk it?

President Trump’s demand last week that OPEC “reduce prices now” or US military protection of OPEC countries may not continue almost sounded desperate. But if anything, Trump’s bluntness is refreshing: if, as he suggests, the purpose of the US military – with a yearly total budget of a trillion dollars - is to protect OPEC members in exchange for “cheap oil,” how cheap is that oil?

At the end, China, Russia, and others are not only unlikely to follow Trump’s demands that Iran again be isolated: they in fact stand to benefit from Trump’s bellicosity toward Iran. One Chinese refiner has just announced that it would cancel orders of US crude and instead turn to Iran for supplies. How many others might follow and what might it mean.

Ironically, President Trump’s “get tough” approach to Iran may end up benefiting Washington’s named adversaries Russia and China — perhaps even Iran. The wisest approach is unfortunately the least likely at this point: back off from regime change, back off from war-footing, back off from sanctions. Trump may eventually find that the cost of ignoring this advice may be higher than he imagined.

As the microbrewery trend is seeing a rise everywhere in the world, 2018 saw the launch of the White Collar Brewing in Bucharest, in my native Romania. Behind the already highly acclaimed beers lies an interesting piece of information: the brewery is the entrepreneurial endeavor of an...

As the microbrewery trend is seeing a rise everywhere in the world, 2018 saw the launch of the White Collar Brewing in Bucharest, in my native Romania. Behind the already highly acclaimed beers lies an interesting piece of information: the brewery is the entrepreneurial endeavor of an Austrian economist, professor at the Romanian-American University in Bucharest and former Mises Institute fellow, Bogdan Glăvan.

Bogdan’s business started as a passion for craft beers, filling in a gap in a domestic market saturated with mass-produced, bland tasting options. Although he built it alongside his lifelong dedication to scholarship in the tradition of Mises and Rothbard in his academic profession, the two passions are not as separate as you might expect.

First, one of the beers is named “Zero Taxe” (eng. Zero Taxes), a nod to the main policy recommendation of any consistent Rothbardian. Bogdan also recommends it to be enjoyed together with Mises’s Human Action. Some of his customers also subscribe to this view and their recommendations on the brewery’s homepage are equally witty: “[The beer] is so good, the government should nationalize it and redistribute it to all its citizens. IPA for the people!”

Second, Bogdan also uses his now daily experiences as an entrepreneur to point out the suffocating bureaucratic environment in Romania and the regulatory obstacles businesses must overcome. For instance, a recent experience has taught him that, although all water supplies are already controlled by a government monopoly and paid for by taxes, entrepreneurs must—beside having special filters and production processes in place—also periodically collect and send water samples to a laboratory, as well as pay for them to be tested, in order to obtain a certificate from the national authorities allowing them to use the water supply in the brewing process.

Below is a picture Bogdan shared a while back with the caption: “Do you want to know how to produce beer in Romania? Here’s how!”

Best of luck to White Collar Brewing in the future, and much patience to its owner in navigating the treacherous waters of government regulations.

The Atlantic's take is that Mainstream economics has many problems, as others have noted. They think that college students should be exposed to some behavioral economics in their economics classes. Their conclusion is thus:

Making behavioral economics compulsory isn’t a cure-all for the...

The Atlantic's take is that Mainstream economics has many problems, as others have noted. They think that college students should be exposed to some behavioral economics in their economics classes. Their conclusion is thus:

Making behavioral economics compulsory isn’t a cure-all for the ills of the economics discipline, but doing so would go a long way in encouraging students to think about building economic models around actual human beings rather than around the caricature that is Homo economicus. If there’s a deeper lesson to come out of the behavioral revolution, it’s that the vagaries of human behavior make it very difficult to model as a pure science, and economists have a lot to learn from other disciplines, including other social sciences and the humanities. This may mean a dose of humility for economists, but it would enrich both the education that their students receive and their prospects of making positive change in the real world.

But some have suggested that Macron’s problem is that he wasn’t sufficiently bold.

I’m not joking. Led by Thomas Piketty, a few dozen European leftists have issued a Manifesto for bigger government.

We, European citizens, from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies. This Manifesto contains concrete proposals, in particular a project for a Democratization Treaty and a Budget Project… Our proposals are based on the creation of a Budget for democratization which would be debated and voted by a sovereign European Assembly. …This Budget, if the European Assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over 200,000 Euros per annum), the highest wealth owners (over 1 million Euros) and the carbon emissions (with a minimum price of 30 Euros per tonne).

Here are the taxes they propose as part of their plan to expand the burden of government spending.

To put it mildly, this plan is absurd. It would impose another layer of governmentand another layer of tax on a continent that already is suffocating because the public sector is too large.

I’m not the only one with concerns.

In a column for Bloomberg, Leonid Bershidsky points out why he is underwhelmed by Piketty’s proposal.

The reforms proposed by Piketty and a group of intellectuals and politicians — notably Pablo Iglesias, leader of Spain’s leftist Podemos party — include the creation of a European Assembly. It would have the power to shape a common budget and impose common taxes…Piketty advocates four measures that would collect a total equivalent to 4 percent of Europe’s GDP… What is being proposed is essentially a return to the fiscal policies of the 1970s, which provoked Astrid Lindgren to write her satirical essay “Pomperipossa in Monismania.” In 1976, the children’s author was confronted with a tax bill of 102 percent of her income. …Hit them with new taxes and watch them flee to the U.S. and Asia. They won’t stay like patriotic Lindgren, whose essay helped to topple the Swedish government in 1976. And no amount of government funding…will repair the damage that envy-based taxation can wreak on economies already finding it hard to innovate.

Writing for CapX, John Ashmore explains why Piketty’s plan will make Europe’s problems even worse.

…a group of politicians, academics and policy wonks spearheaded by…French economist Thomas Piketty…have put their names to a new Manifesto for the Democratisation of Europe. …For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. …The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist. Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate… these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. …that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians.

But the higher spending would be real, as would the inevitable increase in red ink. And it’s worth noting that the Manifesto proposes to subsidize the debt of bankrupt welfare states. Very much akin to the eurobond scheme, which I pointed out would be like cosigning a loan for an unemployed alcoholic with a gambling addiction.

P.S. During my recent trip to London, I repeatedly warned people that a real Brexit was the only sensible choice because the European Union at some point will fully morph into a transfer union (i.e., a European budget financed by European taxes). It was nice of Piketty to issue a Manifesto that confirms my concerns. Simply stated, the United Kingdom will be much better off in the long run if it escapes.

P.P.S. Let’s not forget that Piketty’s core argument for class warfare has been thoroughly and repeatedly debunked. Indeed, only 3 percent of economists agree with his theory.

Vox is whooping up the wacky notion that “sex was better under socialism.” Tell that to Romanian women forced to undergo monthly gyno exams to outlaw abortions because the government proclaimed in 1985 that “the fetus is the socialist property of the whole society… Those who refuse to have...

Vox is whooping up the wacky notion that “sex was better under socialism.” Tell that to Romanian women forced to undergo monthly gyno exams to outlaw abortions because the government proclaimed in 1985 that “the fetus is the socialist property of the whole society… Those who refuse to have children are deserters.” Women’s reproductive lives were part of centralized economic planning, especially “policies to make better use of the population as a factor of production” by “stimulating an increase in birth rates.”

This policy was endorsed and subsidized by the World Bank, which is currently touting itself as the friend of women.

There is a debate among libertarians about the business practices of big tech companies like PayPal, Google, Facebook and Twitter. Is it legitimate for these companies to block user profiles for political, ideological, personal or any other reasons?

The libertarian purist's answer is: "...

There is a debate among libertarians about the business practices of big tech companies like PayPal, Google, Facebook and Twitter. Is it legitimate for these companies to block user profiles for political, ideological, personal or any other reasons?

The libertarian purist's answer is: "Yes, these companies can take such action without explanation! It’s their right." The justification is relatively simple: in a libertarian private law society, no company should be forced to serve customers it does not want to serve. Both the purchase and sale of goods and services are voluntary. Accordingly, from a libertarian point of view, there is nothing to be said against the user profiles of Milo Yiannopoulos, Alex Jones, Rihanna or Clint Eastwood being temporarily or even permanently blocked.

However, the discussion should not end here. Just because someone has the right to do something, you don't have to approve of it. You can criticize the business practices of companies at a different level, even if they do not violate any rights. This criticism is even of the utmost importance.

Just as Twitter can block an account, Twitter customers can decide to stop using the service if they don't like the business practices. Public criticism of these companies therefore has two important effects. Firstly, they inform users about how these companies really operate, because hardly anyone actually reads the general terms and conditions. On the other hand, they give companies an indication of what actual and potential customers think of their practices. If a critical mass of people openly disapproves of these practices, the companies will be forced to change their business policy if they want to maintain or increase their market share. This is exactly how a market economy works.

So, it is important to be critical. It draws users' attention to certain dangers and, in the best-case scenario, can remove the latter if companies react adequately and customer-oriented. And they must, if they want to remain or become top dogs (abstracting from certain crony interventions into the market place).

In the case of the online payment service PayPal, I myself have become the victim of what I consider to be a questionable business practice. After only a few transactions, all of them very small in size, my account was limited so that further payments could neither come in nor go out. Shortly afterwards, the business relationship was terminated unilaterally. An unacceptable risk emanated from my account, and activities were noticed that violated the terms of use. My balance will be withheld for 180 days before I can recover it by submitting identification documents.

The customer service representative on the telephone assured me that PayPal had decided not to work with me anymore. When asked what exactly I was guilty of, he told me that he could not give any information about it. Even after several written inquiries, I didn't get any information on the case.

On my PayPal account money flowed from three different sources and was held there in Euro and US Dollar. As far as I can remember, I used part of the money to book a hotel room and a train ticket. Then the account was blocked.

From my point of view, it would be important for PayPal to communicate which of the activities exactly violated the terms of use, so that I and other users know how to behave in the future. The whole thing is not a unique case either. The blocking of user accounts is based on automated algorithms that no customer service employee can see through. So, the individual employee doesn't even know what the problem was and, even if he wanted to, can't offer a solution.

Those responsible at PayPal should ask themselves whether such business practices are sustainable. In recent years, modern crypto currencies have increased competition, especially for international transactions. If user accounts with PayPal can be blocked just like that, without visible reason and without explanation, one should abstain from using PayPal in particular for business purposes. I can only advise against it.

This example also shows how important it is to prevent a monopolization of the market. This does not mean that companies should be prevented from growing beyond a certain size. If you offer a good product, you should also reap the rewards and grow. Rather, it is a question of ensuring that the up-and-coming competitors, such as crypto companies, who offer alternative products, do not get stones thrown in their way through state interference.

Washington is once again gripped by the specter of a government shutdown, as Congress and President Trump negotiate an end-of-year spending deal. A main issue of contention is funding for President Trump’s border wall. Sadly, but not surprisingly, neither Congress nor the administration is...

Washington is once again gripped by the specter of a government shutdown, as Congress and President Trump negotiate an end-of-year spending deal. A main issue of contention is funding for President Trump’s border wall. Sadly, but not surprisingly, neither Congress nor the administration is fighting to cut, or at least not increase, spending.

Federal spending has increased from 3.6 trillion dollars to 4.4 trillion dollars since Republicans gained control over both chambers of Congress in 2014. Some may try to defend congressional Republicans by pointing out that for two years the Republican Congress had to negotiate spending deals with President Obama. But federal spending has increased by 7.5 percent, or over 300 billion dollars, since Donald Trump become President.

A big beneficiary of the Republican spending spree is the military-industrial complex. Republicans have increased the “defense” budget by eight percent in the past two years. President Trump and congressional Republicans claim the increases are necessary because sequestration “decimated” the military. But Congress, with the Obama administration’s full cooperation and support, suspended sequestration every year but one, so the planned cuts never went into full effect. Congress and Obama also “supplemented” the official military budget with generous appropriations for the Pentagon’s off-budget Overseas Contingency Operations fund. Spending on militarism increased by as much as 600 billion dollars over the amounts allowed for under sequestration.

President Trump has proposed reducing the projected military budget for fiscal year 2020 to 700 billion dollars. This would be a mere two percent cut, yet the usual voices are already crying that this tiny reduction would endanger our security. If history is any guide, the military-industrial complex’s congressional allies and high-priced lobbyists will be able to defeat the president’s proposed reductions and convince President Trump to further increase the military budget.

This huge military budget has little or nothing to do with America’s legitimate security needs. In fact, as candidate Trump recognized, America’s military interventions in the Middle East have endangered our security by empowering terrorist groups like ISIS and al-Qaeda.

While the warfare state has been a big beneficiary of the Republican spending spree, the GOP has hardly neglected the welfare state. Domestic spending has increased seven percent since 2016. Except for a half-hearted attempt to repeal Obamacare and some food stamp reforms that were included in and then dropped from this year’s farm bill, Republicans have not made any effort to roll back or even reform the welfare state.

The farm bill, which Congress is expected to pass this week, will spend as much as 900 billion dollars over the next ten years. Much of that spending will be on taxpayer subsidies for wealthy farmers and even “farmers in name only.”

Trump’s budget deals have been supported by the majority of Democrats. Even those who have called for the president’s impeachment are more than happy to vote with him when it comes to increasing spending and debt. These Democrats are the mirror image of 1990s Republicans who made a big spending deal with President Clinton while simultaneously trying to impeach him.

We suffer from too much bipartisanship when it comes to the welfare-warfare state. This bipartisanship has resulted in a national debt that is rapidly approaching 30 trillion dollars. This will inevitably lead to a major economic crisis. The way to avoid this crisis is to replace the bipartisan welfare-warfare consensus with a new consensus in favor of limited government, peace, free markets in all areas including currency, and auditing then ending the Fed.

Last September a very informative paper was published by the neoconservative Atlantic Council. In connection with this institution are such important public figures as Collin Powell, Condoleezza Rice and Henry Kissinger. The paper, written by John T. Watts, summarizes the main conclusions drawn...

Last September a very informative paper was published by the neoconservative Atlantic Council. In connection with this institution are such important public figures as Collin Powell, Condoleezza Rice and Henry Kissinger. The paper, written by John T. Watts, summarizes the main conclusions drawn at this year's Sovereign Challenges Conference in Washington, DC. The text allows for a deep look into some of the minds of the American elite and their allies. Its reading is therefore highly recommended. The inclined reader, however, should sometimes overlook empty phrases and distracting rhetoric to get to the heart of the matter.

At its core, it's about maintaining power. According to Watts, the big problem is “disinformation”, which is disseminated through new and alternative media. It destabilizes public institutions and in the worst case undermines the sovereignty of the state. This must be prevented.

Neoconservatives are fully aware that any state system ultimately depends on the trust of its citizens. Trust is the basis for the functioning of state institutions. New communication technologies, however, have increasingly enabled “extremist ideological” currents to spread their toxic messages and deprive people of confidence in existing institutions. It is precisely this loss of trust on the part of citizens that endangers the sovereignty of the state.1

The flood of information in the Internet age plays a decisive role because it makes targeted “disinformation” by small but well-organized groups possible in the first place. It leads to exaggeration, isolation and one-sidedness within one's own “echo chamber”. According to Watts, the sudden availability of large amounts of information can overburden a society. Too much useless and qualitatively inferior information can lead to isolation and polarization. People specifically select their sources of information and limit themselves in the process. They even have to do so in view of the many alternatives available to them. But in doing so, they tend to rely on those sources that confirm and reinforce their own prejudices.

In order to underline the potential seriousness of the situation, Watts refers to Nate Silver's book The Signal and the Noise, in which a parallel is drawn between the invention of the printing press and the advent of the Internet. This analogy was also taken up by the Scottish historian Niall Ferguson in his recent book The Square and the Tower.2 Both authors recall that the invention of printing not only made Luther's Reformation of the Christian Church possible, but also provided a powerful means of communication for many populist and, from today's point of view, deterrent movements. Here, for example, one can refer to the witch hunts of the early modern period. After Luther's Reformation, Europe was also plunged into centuries of religious wars. Is something similar threatening us today in the age of the Internet? It is clear that also today existing hierarchies and power structures are questioned and start to falter. This usually leads to the old elites giving their all in order to maintain their privileged position.

But first it has to be clarified who is really behind the specter of “disinformation”. Watts refers not only to all sorts of “conspiracy theorists” like “truthers,” “chemtrailers” or “anti-vaxxers”, whose political and social impact can really be doubted, but also to Islamic terror groups or the Russian secret service, which is said to have influenced the outcome of the American presidential elections through such powerful social networks as Facebook.

At this point, however, we should pause for a moment. Is interference in the political affairs of other countries an exclusively Russian phenomenon? No. This has always been the case everywhere, especially on the part of the USA in recent history. So, if the Russian secret service is behind targeted disinformation, can the American establishment really free itself from it? Here, too, a clear no. Think, for example, of the deliberate manipulation of public opinion before various military interventions in the Middle East.

For Watts it is simply about which narrative dominates and determines public opinion. Truth is an elastic term, he claims. The question is merely: "Whose truth?” So, it is nothing but a power struggle. From this point of view disinformation is merely a truth deviating from one's own truth and must be fought against. One's own truth becomes the disinformation of the opponent. Therefore, according to Watts, new gatekeepers are needed in the modern flow of information. The prevailing opinion must be brought back on track.

The good thing, however, is that Watts is wrong. Truth is not subjective. It is, if at all, very limited in elasticity. And if it turns out that the hitherto so dominant narrative of the American establishment has overstretched the truth at one point or another, it is a blessing that modern communication technology makes it possible to point this out critically and effectively. We can only hope that technology will always stay one step ahead of regulators and gatekeepers – and that citizens will ultimately trust the narrative that is closest to the truth.

To unravel the mystery, Peshut compares movements in the Rothbard-Salerno TMS monetary aggregate with movements in corporate business debt from 1978 through 2017. At the end of 2017 corporate business debt stood at $29.1 billion or about $10 trillion above its post-crisis trough at the end of 2009. TMS reached its cyclical trough of $5.1 trillion at the end of 2006 and increased to $13.1 trillion, a breath-taking increase of 156.9%, by the end of 2017. For the sake of comparison, during the housing bubble TMS increased by “only” 70%, from $3.0 trillion to $5.1 trillion from 2000 to 2006. The year-over-year (YOY) rate of growth of TMS has precipitously fallen from over 7% in 2016 to less than 4% at the end of 2017. The huge increase in the money supply from 2009 onward would certainly lead us to suspect that there is a systemic overvaluation of asset markets that will sooner or later come to a bad end. But the trillion dollar question is, of course: When?

With respect to the corporate debt market, Peshut gives us a cogent ad informed forecast. He finds that in the last three complete credit cycles, from 1994 through 2009, the trough in the YOY growth rate of TMS has preceded the trough in the YOY growth rate of corporate business debt by about three years in each case. Given this three-year lag, even if TMS has already reached its trough, Peshut concludes that claims that the corporate debt bubble is about to pop are premature and the more likely scenario is that the bubble bursts in 2021 or 2022.

Austrian economists should take an interest in the so-called “replication crisis” in science, which is affecting primarily the field of psychology, but is likely under-recognized in other social sciences—and in economics in particular.

Over the last several, an increasing number of...

Austrian economists should take an interest in the so-called “replication crisis” in science, which is affecting primarily the field of psychology, but is likely under-recognized in other social sciences—and in economics in particular.

Over the last several, an increasing number of reports have highlighted the fact that scientists are frequently unable to replicate the results of prior experiments in psychology, even when those experimental or correlational studies were conducted and analyzed according to commonly accepted methods. The magnitude of the problem was made concrete in a 2015 Science paper by lead author Brian Nosek. Replication rates, in terms of statistical significance or effect size, were only between 25-50% (depending on the particular field of psychological study).

The doubts raised by Nosek and his collaborators are metastasizing to other human sciences, including medicine. Reports of poor research reproducibility are now appearing routinely in scientific journals. Interestingly , in the context of such a replication study pertaining to the social sciences and published this past August, it was discovered that scientists are able to predict a priori with a high degree of accuracy which particular result will be replicated and which will not!

A perhaps even more startling study was just published last month. Nosek submitted a very rich data set, taken from the 2012-2013 soccer season, to 29 different teams of statisticians for analysis. The question to be answered by the statisticians was whether a darker skin tone increased the likelihood that a player would receive a red card. The variability in the methods chosen and in the results obtained was astounding, especially since, at one point in the process, the teams of analysts were encouraged to compare notes and give each other feedback.

We interviewed Nosek on our podcast about his work. It was a fascinating conversation. As an empiricist, he remains hopeful that, perhaps through greater transparency, sharing of data, and collaboration among scientists, the replication crisis will resolve itself. And he expects that the resolution will occur while preserving the standard theoretical assumptions of empiricism.

I’m not so “optimistic,” and I suspect that the crisis will be protracted. But I am hopeful that, over time, social scientists will come to recognize and accept that certain types of knowledge can only be obtained by human judgment, rather than by measurement—provided that the judgment and reasoning proceed logically from a basis of reasonable assumptions. This isa good opportunity for Austrians to showcase their methodological alternative to the scientific world

Once again Donald Trump’s presidency has done a great job of highlighting the hypocrisy and delusion of the beltway bubble.

A recent story from the Daily Beast reports that Trump is frustrating advisers with his apathy towards the current trillion dollar deficits coming out of...

Once again Donald Trump’s presidency has done a great job of highlighting the hypocrisy and delusion of the beltway bubble.

A recent story from the Daily Beast reports that Trump is frustrating advisers with his apathy towards the current trillion dollar deficits coming out of Washington.

Since the 2016 presidential campaign, Donald Trump’s aides and advisers have tried to convince him of the importance of tackling the national debt.

Sources close to the president say he has repeatedly shrugged it off, implying that he doesn’t have to worry about the money owed to America’s creditors—currently about $21 trillion—because he won’t be around to shoulder the blame when it becomes even more untenable.

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the national debt in the not-too-distant future. In response, Trump noted that the data suggested the debt would reach a critical mass only after his possible second term in office.

“Yeah, but I won’t be here,” the president bluntly said, according to a source who was in the room when Trump made this comment during discussions on the debt.

Trump’s lack of concern for the debt should hardly be surprising. As a candidate, he boasted about his desire to preserve various entitlement programs while simultaneously promising significant increases in military spending – a promise he has delivered on. Left unsaid in the report is that the goal of at least some of Trump’s advisors was undoubtedly to encourage the president to embrace some form of tax increase. We know, for example, that Treasury Secretary Steve Mnuchin has encouraged Trump to embrace a VAT tax in the past, a policy that would be particularly damaging to America’s low and middle class.

What’s all the more comical, however, is the resulting jeering from DC pundits and political enemies acting as if Trump’s view on the debt is some radical new threat to American stability. On the contrast, all Trump is doing is being honest about the views held by almost everyone that has served in Washington the past several decades. While politicians from both parties love to give lip service to “fiscal responsibility”, the closest thing we’ve come to meaningful action on budgetary restraint was the budget sequestration of 2013. Of course those cuts to future spending increases (not to be confused with actual spending cuts) came into place simply because of the inaction of federal legislators and faced instant bipartisan condemnation.

This isn’t the first time that Trump’s truth telling over the debt has thrown opposing politicians and pundits into a tizzy. On the campaign trail, Trump was accused of threatening financial Armageddon when he suggested that America could default on its debt. What should be obvious to anyone who has paid even passive attention to American politics is that US default is inevitable. The only question is what form will it take.

One of the greatest myths in DC is that America has never defaulted on its debt, something repeated not long ago by Fed Chair Jerome Powell in a Congressional hearing. Of course this is simply absurd.

As James Grant and other financial historians have explained, the federal government has defaulted numerous times in its history, the most recent of which occurred when Richard Nixon closed the gold window. In that case, the out of control spending, led by the Vietnam war and LBJ’s Great Society, led the US to default on its obligations to foreign governments, repaying their loans with dollars valued at far less than the $35 per ounce they were promised.

Another option, one that Murray Rothbard advlocated, is simple debt repudiation. As he wrote in 1992, when US debt was a quaint $4 trillion:

I propose, then, a seemingly drastic but actually far less destructive way of paying off the public debt at a single blow: outright debt repudiation. Consider this question: why should the poor, battered citizens of Russia or Poland or the other ex-Communist countries be bound by the debts contracted by their former Communist masters? In the Communist situation, the injustice is clear: that citizens struggling for freedom and for a free-market economy should be taxed to pay for debts contracted by the monstrous former ruling class. But this injustice only differs by degree from "normal" public debt. For, conversely, why should the Communist government of the Soviet Union have been bound by debts contracted by the Czarist government they hated and overthrew? And why should we, struggling American citizens of today, be bound by debts created by a past ruling elite who contracted these debts at our expense? One of the cogent arguments against paying blacks "reparations" for past slavery is that we, the living, were not slaveholders. Similarly, we the living did not contract for either the past or the present debts incurred by the politicians and bureaucrats in Washington.

Rothbard goes on to suggest that a more traditional debt restructuring – similar to what Trump touched on during his campaign – could also be an option if outright repudiation was considered to be “too draconian.”

The government is an organization, so why not liquidate the assets of that organization and pay the creditors (the government bondholders) a pro-rata share of those assets? This solution would cost the taxpayer nothing....The United States government should be forced to disgorge its assets, sell them at auction, and then pay off the creditors accordingly....This combination of repudiation and privatization would go a long way to reducing the tax burden, establishing fiscal soundness, and desocializing the United States.

[T]he idea that the US can never restructure or even repudiate the national debt — that US Treasuries must always be treated as a unique and magical “risk-free” investment — is wildly speculative at best, preposterous at worst. Every other borrowing entity — individuals, business firms, and governments — has the option of renegotiating interest payments and even defaulting on loans. It is hardly an extraordinary event, even for sovereign borrowing — that’s why lenders charge a risk premium beyond the return they require to compensate for time preference.

There is lots of evidence on private, corporate, and sovereign defaults, and the results are hardly catastrophic. Depending on the circumstances, the benefits of reducing debt can exceed the costs of harming the borrower’s reputation and thus increasing the costs of future borrowing. Anyone who has been through a personal or corporate bankruptcy knows this.

At the end of the day Trump’s views on dismissal of US debt illustrate is another example of short-sighted economic thinking. It’s absurd, however, to treat this as some radical change from his more “dignified” and “respectable” predecessors. Instead, just like his views on tariffs, monetary policy, and defense spending, Trump’s real sin is simply being a continuation of the status quo on these issues

The difference is that Trump says out loud the part politicians are supposed to keep quiet.

POWER & MARKET BLOG

Power & Market offers a contrarian take on world events. We favor individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. Connect to Power & Market via twitter and RSS.